Matheson Electronics has just developed a new electronic device it believes will have broad market appeal. The
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Matheson Electronics has just developed a new electronic device it believes will have broad market appeal. The company has performed marketing and cost studies that revealed the following information: New equipment would have to be acquired to produce the device. The equipment would cost $ and have a sixyear useful life. After six years, it would have a salvage value of about $ Sales in units over the next six years are projected to be as follows: Year Sales in Units Production and sales of the device would require working capital of $ to finance accounts receivable, inventories, and daytoday cash needs. This working capital would be released at the end of the projects life. The devices would sell for $ each; variable costs for production, administration, and sales would be $ per unit. Fixed costs for salaries, maintenance, property taxes, insurance, and straightline depreciation on the equipment would total $ per year. Depreciation is based on cost less salvage value. To gain rapid entry into the market, the company would have to advertise heavily. The advertising costs would be: Year Amount of Yearly Advertising $ $ $ The companys required rate of return is Required: Compute the net cash inflow incremental contribution margin minus incremental fixed expenses anticipated from sale of the device for each year over the next six years. Using the data computed in above and other data provided in the problem, determine the net present value of the proposed investment. Would you recommend that Matheson accept the device as a new product?
Related Book For
Managerial Accounting
ISBN: 9781260247787
17th Edition
Authors: Ray Garrison, Eric Noreen, Peter Brewer
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